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ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes

Kappa Ltd recognised a revaluation gain of $200,000 on land in other comprehensive income. The tax rate is 25% and the gain creates a taxable temporary difference. Which presentation is required under IAS 12 for the related deferred tax?

The $50,000 deferred tax (25% of $200,000) should be charged in other comprehensive income against the revaluation surplus. IAS 12 requires tax on items recognised outside profit or loss to be recognised in the same place as the underlying item.

  1. ADeferred tax expense of $50,000 in profit or loss
  2. BDeferred tax of $50,000 debited to other comprehensive income, within the revaluation surplus movementCorrect
  3. CDeferred tax of $50,000 deducted directly from the carrying amount of the land
  4. DNo deferred tax, because land is not depreciated

Explanation

IAS 12 requires tax to be recognised outside profit or loss when it relates to items recognised outside profit or loss. The revaluation gain was in OCI, so deferred tax of 25% x $200,000 = $50,000 is also charged to OCI. Charging profit or loss would mismatch the tax with the item that caused it. Non-depreciation of land does not remove the temporary difference.

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